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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1995 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Centre, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code:
(847) 945-5591
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicated by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not determinable as such shares were privately placed and there
is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
March 29, 1996: 93,501.0004.
PART I
Item 1. BUSINESS
Jordan Industries, Inc. (the "Company") is a private holding company
which owns and manages a widely diversified group of operating companies. The
capital stock of the Company is held by its management and the partners,
principals, employees and affiliates of The Jordan Company (collectively, the
"Jordan Group"). The Company was formed in order to provide its subsidiaries
with long range planning, broader access to financial markets, and
professional and financial management, while permitting its subsidiaries'
management broad discretion in implementing their strategies and operating
their day-to-day businesses. The Company conducts its operations exclusively
through its subsidiaries.
The Company's business is divided into five groups. The Specialty
Printing and Labeling group ("SPL"), which had 1995 net sales of approximately
$96.5 million, consists of Sales Promotion Associates, Inc. ("SPAI"), Pamco
Printed Tape and Label Company, Inc. ("Pamco"), and Valmark Industries, Inc.
("Valmark"). The Motors and Gears group, which had 1995 net sales of
approximately $54.2 million, consists of The Imperial Electric Company
("Imperial") and its subsidiaries, The Scott Motors Company ("Scott"), and
Gear Research, Inc. ("Gear"), and Merkle-Korff Industries, Inc. ("Merkle-Korff")
The connectors group, which had 1995 net sales of approximately
$22.7 million, consists of AIM Electronics Corporation ("AIM"), and Cambridge
Products Corporation ("Cambridge"). Welcome Home, Inc. ("Welcome Home"), had
1995 net sales of $93.2 million. The Consumer and Industrial Products group,
which had 1995 net sales of $240.7 million, include DACCO, Incorporated
("DACCO"), Sate-Lite Manufacturing Company ("Sate-Lite"), Riverside Book and
Bible Corporation ("Riverside"), Dura-Line Corporation ("Dura-Line"), Parsons
Precision Products, Inc. ("Parsons"), Hudson Lock, Inc. ("Hudson"), and Beemak
Plastics, Inc. ("Beemak"). All of the foregoing corporations are collectively
referred to herein as the "Subsidiaries," and individually as a "Subsidiary."
Certain of the subsidiaries are designated as "Restricted Subsidiaries".
These subsidiaries are DACCO, Sate-Lite, Riverside, Welcome Home, Dura-Line,
Parsons, Imperial, Scott, Gear, Hudson, AIM, Cambridge and Beemak. See Note
14 to the consolidated financial statements included elsewhere in this Annual
Report with respect to business segment information for 1995, 1994 and 1993.
The Company owned the following percentages of the common shares of the
subsidiaries as of March 29, 1996:
Subsidiary Percentage Ownership
Sate-Lite 95.5%
Welcome Home 66.0%
DACCO 100%
Riverside 100%
Parsons 85%
Dura-Line 100%
Imperial 100%
Scott 100% (1)
Gear 100% (1)
Hudson 100%
AIM 100%
Cambridge 100%
Beemak 100%
M&G Holdings 87.6% (2)
SPL 83.3% (3)
(1) Scott and Gear are indirectly owned through Imperial, which holds 100%
of their respective common shares.
(2) Merkle-Korff is indirectly owned through M&G Holdings, which indirectly
holds 100% of the common shares of Merkle-Korff.
(3) SPAI, Valmark, and Pamco are indirectly owned through SPL, which holds
100% of the common shares of SPAI and Valmark, and 80% of the common
shares of Pamco.
Specialty Printing and Labeling Group
SPAI. The Company's former subsidiaries, The Thos. D. Murphy Co.
("Murphy"), which was founded in 1889, and Shaw-Barton, Inc. ("Shaw-Barton"),
which was founded in 1940, merged to form JII/SPAI in March 1989. One-hundred
percent of JII/SPAI's assets were sold at arms length into SPL in August of
1995 and the Company was renamed Sales Promotion Associates, Inc. ("SPAI").
SPAI is a producer and distributor of calendars for corporate buyers and is
a distributor of corporate recognition, promotion and specialty advertising
products.
Approximately 55% of SPAI's 1995 net sales are derived from distributing
a broad variety of corporate recognition products, promotion and specialty
advertising products. These products include apparel, watches, crystal,
luggage, writing instruments, glassware, caps, cases, labels and other items
that are printed and identified with a particular corporate logo and/or
corporate advertising campaign. Approximately 33% of SPAI's 1995 net sales
are derived from the sale of a broad variety of calendars, including hanging,
desktop, and pocket calendars that are used internally by corporate customers
and distributed by them to their clients and customers. High quality artistic
calendars are also distributed. SPAI also manufactures and distributes soft-
cover school yearbooks for kindergarten through eighth grade.
SPAI assembles and finishes calendars that are printed both in-house as
well as by a number of outside printers. Facilities for in-house
manufacturing include a composing room, a camera room, a calendar finishing
department, and a full press room. Print stock, binding material, packaging
and other materials are supplied by a number of independent companies.
Specialty advertising products are purchased from more than 975 suppliers.
Calendars and specialty advertising products are sold through a 1,250 person
sales force, most of whom are independent contractors.
Management believes that SPAI has one of the largest domestic sales
forces in the industry. With this large sales force and a broad range of
calendars and corporate recognition products available, management believes
that SPAI is a strong competitor in its market. This market is very
fragmented
and most of the competition comes from smaller scale producers and
distributors.
Valmark. Valmark, which was founded in 1976 and purchased by the
Company in 1994, is a specialty printer and manufacturer of pressure sensitive
label products for the electronics OEM market. Valmark's products include
adhesive backed labels, graphic panel overlays, multi-color membrane switches,
and radio frequency interference (RFI) shielding devices. Approximately 53%
of net sales are derived from the sale of graphic panel overlays and membrane
switches, 22% from labels, and 25% from shielding devices.
The specialty screen products sold in the electronics industry continue
to operate relatively free of foreign competition due to the high level of
communication and short time frame usually required to produce orders.
Currently, the majority of Valmark's customer base of approximately 850 is
located in the Northern California area.
Valmark sells to four primary markets: personal computers, general
electronics, turn-key services, and medical instrumentation. The sales to the
personal computer industry has experienced the most growth over recent years
due to Valmark's RFI shield protection capabilities. Sales to Apple Computer
of RFI devices represented approximately 21% of net sales in 1995.
Valmark is able to provide the electronics OEM's with a broader range
of products than many of its competitors. Valmark's markets are very
competitive in terms of price and accordingly Valmark's advantage over its
competitors is derived from their diverse product line and excellent quality
ratings.
Pamco. Pamco, which was founded in 1953 and purchased by the Company
in 1994 is a manufacturer and distributor of a wide variety of printed tapes
and labels. Pamco offers a range of products from simple one and two-color
labels, such as basic bar codes and address labels to seven-color, varnish-
finished labels for products such as video games and food packaging. 100% of
Pamco's products are made to customers' specifications and 90% of all sales
are manufactured in-house. The remaining 10% of net sales are purchased
printed products and include business cards and stationary.
Pamco's products are marketed by a team of 12 sales representatives who
focus on procuring new accounts. Existing accounts are serviced by nine
customer service representatives. Pamco's customers represent several
different industries with the five largest accounting for approximately 18%
of net sales.
Pamco competes in a highly-fragmented industry. Pamco emphasizes its
impressive turnaround time of 24 hours and its ability to accommodate rush
orders that other printers can not handle. Due to these characteristics,
Pamco has posted significant growth over the past several years.
Motors and Gears Group
Merkle-Korff - Merkle-Korff is a custom manufacturer of AC and DC motors
and gear motors. Merkle-Korff's products are used in a wide range of products
including refrigerators, freezers, dishwashers, vending machines, business
machines, pumps and compressors. Approximately 61% of Merkle-Korff's 1995
sales were derived from the home appliance and vending machine market.
Merkle-
Korff's prominent customers include General Electric Company, Whirlpool
Corporation and Dixie-Narco, Inc. The Company's top 10 customers represent
approximately 60% of total sales.
Merkle-Korff was founded in 1911 and was purchased, along with its
wholly-owned subsidiaries, Elmco Industries, Inc. and Mercury Industries,
Inc., by the Company in 1995.
Imperial. Imperial manufactures elevator motors, floor care equipment
motors and automatic hose reel motors. Imperial was founded in 1889 and
acquired by the Jordan Group and Imperial's management in 1983.
Imperial designs, manufactures and distributes specialty electric motors
for industrial and commercial use. Its products, AC and DC motors, generators
and permanent magnet motors are sold principally in the U.S. and Canada and
to a limited extent in Europe and Australia. Approximately 32% of Imperial's
1995 net sales were derived from elevator motors, ranging from 5 to 100
horsepower,
sold to major domestic elevator manufacturers. Approximately 66% of
Imperial's 1995 net sales were derived from permanent magnet motors sold to
domestic manufacturers of floor care equipment. The remaining 2% of Imperial's
1995 net sales came from sales of miscellaneous parts.
Otis Elevator Company, Westinghouse Corporation and other leading
elevator manufacturers have in recent years discontinued internal
manufacturing of motors and have turned to Imperial and other independent
manufacturers. In 1995, Clark Industries, Inc. accounted for approximately
12% of Imperial's net sales, and Imperial's top ten customers accounted for
55% of total net sales.
Imperial's products are marketed domestically by its management and two
independent sales representatives and internationally by management.
Imperial manufactures specialty motors with steel, magnets, copper wire,
castings and other components supplied by a variety of firms. In the elevator
motor market, Imperial competes with several firms of varying size. The other
markets in which Imperial competes are also highly competitive. However, the
Company's management believes that Imperial is able to effectively compete
with these firms on the basis of product reliability, price and customer
service.
Scott. Scott was founded in 1982 and acquired by Imperial in August
1988. Scott manufactures and sells floor care machine motors; silicone
controlled rectifier motors, which are variable speed motors used in
conveyers, machine tools, treadmills, mixers and metering pumps; and low
voltage DC motors.
Scott offers a number of standard motors designed for a variety of
applications. Scott also custom designs motors for special applications.
Scott manufactures many of the sub-assemblies, components and molds for its
products from raw materials, which gives it the ability to manufacture these
special application motors. Scott obtains these raw materials from a number
of independent sources.
Scott markets its products through an internal sales force of 3 and an
external sales force of representatives and distributors.
Gear. Gear manufactures precision gears and gear boxes for OEMs
requiring high precision commercial gears. Gear was founded in 1952 and
acquired by Imperial in November 1988. Gear manufactures precision gears for
both AC and DC electric motors in a variety of sizes. The gears are sold
primarily to the food, floor care machine and aerospace industries and to
other manufacturers of machines and hydraulic pumps. Gear's products are
nationally advertised in trade journals and are sold by 3 internal salesmen
and 1 independent sales representative. Gear precision machines its products
from steel forgings and castings.
Gear competes primarily on the basis of quality. In addition, the
ability of Imperial, Scott and Gear to offer both electric motors and gear
boxes as a package, and to custom design these items for customers, may allow
all three subsidiaries to gain greater market penetration.
Connectors Group
AIM. AIM, which was founded in 1981 and acquired by the Company in May
1989, is an importer and manufacturer of electronic connectors, adapters,
switches, tools and other electronic hardware products for the commercial and
consumer electronics markets. Electronic connectors are AIM's main product,
representing more than 45% of AIM's 1995 net sales.
AIM's products are manufactured to its specifications overseas,
primarily in the Far East, and carry the "AIM" logo. Producers are under the
supervision of an AIM agent. The products are sold worldwide to electronics,
electrical, general line and industrial distributors. AIM has warehousing and
order processing systems that enable AIM to provide delivery on a 24-hour
basis to most customers.
AIM sells nationwide to approximately 2,000 distributors in the U.S. and
Central and South America. AIM uses a combination of 11 manufacturers'
representative organizations with a total of 27 salespeople and 8 factory
direct salesmen to service existing accounts and to locate new distributors.
The customer base is very broad, with the largest customer accounting for
about 3% of sales. AIM also mails product catalogs and other marketing pieces
to current customers and potential new accounts.
The $11.5 billion domestic connector and interconnect supply industry
is fragmented with the 12 largest companies controlling less than 25% of the
market. The two largest are AMP and Amphenol. AMP and Amphenol specialize
strictly in electronic device production. Small and mid-sized companies such
as AIM have captured significant market share during the past 10 years by
offering distributors better service on orders compared to the industry
leaders.
In 1994, AIM began to market manufactured cable and harness assemblies
made at its facility in Florida. The custom made assemblies are sold under
the "Prestige" trademark to a wide range of customers. Sales of cable and
harness assemblies are estimated to be approximately 12% of AIM's 1995 net
sales.
Cambridge. Cambridge, which was founded in 1972 and acquired by the
Company in September 1989, is a domestic manufacturer of high-quality
electronic connectors, plugs, adapters, and other accessories. Cambridge is
primarily a designer and marketer of approximately 300 types of specialty
radio frequency (RF) coaxial electronic connectors for radio, mobile
communications, television and computer equipment. RF coaxial connectors are
used to integrate separate systems by connecting input-output power and signal
transmission sources. The systems in which RF connectors are used may be
complex, but RF connectors themselves serve a mechanical purpose which is
technologically straightforward. Cambridge is essentially an assembly
operation. The primary components of Cambridge's connector products are screw
machine and diecast parts which are purchased from approximately 20 suppliers.
The production process is highly automated, with direct labor accounting for
only 6% of net sales. Equipment consists of semi-automatic parts assembly and
packaging equipment which has been designed and manufactured by Cambridge.
Approximately 25% of Cambridge's connectors are manufactured according
to a design that allows users to affix the connector to the cable faster and
easier without the need for complicated tools and time-consuming soldering.
These connectors are marketed under the "FASTFIT" trademark.
Cambridge sells its products nationwide to 500 distributors, 200 OEMs,
and approximately 200 other various end-users. Cambridge uses a combination
of 6 manufacturers' representative organizations with a total of 14
salespeople and 8 factory direct salesmen located throughout North America.
The two largest customers account for approximately 16% of net sales.
Cambridge also mails a large number of catalogs to current customers and
potential new accounts. Cambridge strongly emphasizes that it is an
"American" producer of high-quality electronic connectors.
Cambridge competes in the same market as AIM. Cambridge does not offer
the product selection of its large competitors; however, it competes
effectively by targeting distributors and manufacturers which require fast
service and prefer an American-made product.
Welcome Home
Welcome Home is a national, high-end specialty retailer of decorative
home furnishing accessories. Welcome Home was acquired by the Company in
1991.
Welcome Home's stores are located primarily in high-end designer outlet
malls. Their products include textiles, afghans, framed art, picture frames,
wood, seasonal and other merchandise targeted to gift-buying and value-conscious
consumers. Welcome Home sells its merchandise through 215 retail
stores located throughout the United States and Canada.
Welcome Home's emphasis is on outlets located in malls where upscale
manufacturers such as Ralph Lauren, Liz Claiborne, Ann Klein, Harve Bernard,
Van Huesen, and others are located.
There is no direct competition for Welcome Home on a national basis.
Comparable companies with similar product lines do not compete in the value-
retail segment of the market.
Consumer and Industrial Products Group
DACCO. DACCO is a producer of remanufactured torque converters, as well
as transmission sub-systems and other related products used by transmission
repair shops. DACCO was founded in 1965 and acquired by the Company in 1988.
Approximately 78% of DACCO's products are classified as "hard" products,
which primarily consist of torque converters and hydraulic pumps that have
been rebuilt or remanufactured by DACCO. The torque converter, which replaces
a clutch in an automatic transmission, transfers power from the engine to the
drive shaft. The hydraulic pump supplies oil to all the systems in the
transmission.
DACCO's primary supply of used torque converters is its customers. As
a part of each sale, DACCO recovers the used torque converter which is being
replaced with its remanufactured converter. DACCO also purchases used torque
converters from automobile salvage companies. Other hard parts, such as
clutch plates and fly wheels, are purchased from outside suppliers.
Approximately 22% of DACCO's products are classified as "soft" products,
such as sealing rings, bushings, washers, filter kits and rubber components.
Approximately 11,000 soft products are purchased from a number of vendors and
are re-sold in a broad variety of packages, configurations and kits.
DACCO's customers are automotive transmission parts distributors and
transmission repair shops and mechanics. DACCO has 51 independent sales
representatives who accounted for approximately 70% of DACCO's net sales in
1995. These sales representatives sell nationwide to independent warehouse
distributors and to transmission repair shops. DACCO also owns and operates
thirty-one distribution centers which sell directly to transmission shops.
DACCO distribution centers average 3,000 - 5,000 square feet, cover a 50 to
100 mile selling radius and sell approximately 42% hard products and 58% soft
products. In 1995 no single customer accounted for more than 1% of DACCO's
net sales.
The domestic market for DACCO's hard products is fragmented and DACCO's
competitors primarily consist of a number of small regional and local
rebuilders. DACCO believes that it competes strongly against these rebuilders
by offering a broader product line, quality products, and lower prices, all
of which are made possible by DACCO's size and economies of operation.
However, the market for soft products is highly competitive and several of the
competitors such as TranStar Industries and Aftermarket Technology Corporation
are larger than DACCO. DACCO competes in the soft products market on the
basis of its low prices due to volume buying, its growing distribution network
and its ability to offer one-step procurement of a broad variety of both hard
and soft products.
Sate-Lite. Sate-Lite manufactures safety reflectors for bicycle and
commercial truck manufacturers, as well as plastic parts for bicycle
manufacturers and colorants for the thermoplastics industry. Sate-Lite was
founded in 1968 and acquired by the Jordan Group and Sate-Lite's management
in 1985.
Bicycle reflectors and plastic bicycle parts accounted for approximately
42% of Sate-Lite's net sales in 1995. Sales of triangular flares and
specialty reflectors and lenses to commercial truck customers accounted for
approximately 39% of 1995 net sales. The remainder of Sate-Lite's net sales
were derived primarily from the sale of colorants to the thermoplastics
industry.
Sate-Lite's bicycle products are sold directly to a number of original
equipment manufacturers ("OEMs"). The two largest OEM customers for bicycle
products are the Huffy Corporation and Murray/Ohio Manufacturing Company,
which accounted for approximately 20% of Sate-Lite's fiscal 1995 net sales.
The triangular flares and other truck reflector products are also sold to a
broad range of OEM customers. Colorants are sold primarily to mid-western
custom molded plastic parts manufacturers. In 1995, Sate-Lite's ten largest
customers accounted for approximately 59% of net sales.
Sate-Lite's products are marketed on a nationwide basis by its
management. Sales to foreign customers are handled directly by management and
by independent trading companies on a commission basis. In 1995, Sate-Lite's
export net sales accounted for approximately 9% of its total net sales.
Export sales were principally to China and Canada.
The principal raw materials used in manufacturing Sate-Lite's products
are plastic resins, adhesives, metal fasteners and color pigments. Sate-Lite
obtains these materials from several independent suppliers.
The markets for bicycle parts and thermoplastic colorants are highly
competitive. Sate-Lite competes in these markets by offering innovative
products and by relying on its established reputation for producing high
quality plastic components and colorants. Sate-Lite's principal competitors
in the reflector market consist of foreign manufacturers. Sate-Lite competes
with regional companies in the colorants market.
Riverside. Riverside is a publisher of Bibles and a distributor of
Bibles, religious books and music recordings. Riverside was founded in 1943
and acquired by the Company in 1988.
Approximately 71% of Riverside's business consists of products published
by other companies. Riverside sells world-wide to more than 10,000
wholesaler, religious and trade book store customers, utilizing an in-house
telemarketing system, two independent sales representative groups and printed
sales media. In addition, Riverside sells a small percentage of its products
through direct mail and to retail customers. No single customer accounted for
more than 5% of Riverside's 1995 net sales.
Riverside also provides Bible indexing, warehousing, inventory and
shipping services for domestic book publishers and music producers. Riverside
competes with larger firms, including the Zondervan Corporation, The Thomas
Nelson Company and Spring Arbor Distributors, on the basis of price, product
line and customer service.
Dura-Line. Dura-Line is a manufacturer and supplier of "Innerduct" pipe
through which fiber optic cable is installed and housed. Dura-Line sells this
product to major telecommunications companies throughout the world. Dura-Line
also manufactures flexible polyethylene water and natural gas pipe. Dura-Line
was founded in 1971 and acquired by the Jordan Group and Dura-Line's
management in 1985.
In 1995, approximately 98% of Dura-Line's net sales came from Innerduct
and the cable television industry. Dura-Line sells to major
telecommunications
companies, such as Bell South Services, GTE, and U.S. West Communications,
each of which accounted for less than 10% of Dura-Line's Innerduct net sales.
Innerduct is marketed worldwide by Dura-Line's management, 40 manufacturing
representatives and ten in-house sales representatives. Dura-Line negotiates
long-term contracts with major telecommunications companies for its Innerduct
product line. It competes for these sales on the basis of technical
innovation, price, quality and service.
In addition, approximately 2% of Dura-Line's 1995 net sales came from
the sale of polyethylene water and natural gas pipe to a variety of hardware
stores, contractors, plumbing supply firms and distributors. Dura-Line
markets its water and natural gas pipe products through 60 manufacturing
representatives in the Southern and Eastern U.S. The water and natural gas
pipe market is very competitive. Dura-Line competes on the basis of quality
and price with a number of regional and local firms.
Dura-Line's products are manufactured through the plastic extrusion
process. Dura-Line procures raw plastic for extrusion from a number of
independent suppliers. In March 1989, Dura-Line opened a new manufacturing
facility in the United Kingdom to manufacture products for sale to British
Telecom and other foreign customers. Approximately 40% of Dura-Line's net
sales are foreign sales. In late 1990, Dura-Line purchased a facility in
Reno, Nevada. This facility opened in early 1991 and has increased Dura-Line's
annual capacity by approximately 50%. Also, in 1993, Dura-Line entered
into joint venture agreements in the Czech Republic and Israel to service
Eastern Europe and the Middle East more effectively.
Parsons. Parsons is a diversified supplier of hot formed titanium
parts, precision machined parts and fabricated components for the U.S.
aerospace industry. Parsons was founded in 1959 and acquired by the Jordan
Group and Parsons' management in 1984.
Approximately 40% of Parsons' 1995 net sales came from sales to The
Boeing Company. Approximately 95% of Parsons' 1995 net sales were derived
from the sale of various parts and components to the aerospace industry.
Parsons employs precision machining, welding/fabrication and sheet metal
forming processes to manufacture its products at its facilities in Parsons,
Kansas. Parsons continues to invest in its titanium hot forming operation,
which permits Parsons to participate in the aerospace market for precision
titanium components.
Parsons uses metals, including stainless steel, aluminum and titanium
to fabricate its products. These materials are either supplied by Parsons'
customers or obtained from a number of outside sources.
Parsons sells its products directly to a broad base of aerospace and
military customers, relying on longstanding associations and Parsons'
reputation for high quality and service.
Hudson. Hudson, which was founded in 1963 and acquired by the Company
in April 1989, is a fully integrated manufacturer of custom and specialty
medium security locks. Hudson produces cam, switch and latch locks for use
in office furniture, mail boxes, point-of-sale terminals and a variety of
other products.
Hudson manufactures customized lock housings and lock cores from
customized molds. Tooling is originally purchased by Hudson from outside
manufacturers, then cleaned and reworked on a regular basis at Hudson's own
repair and maintenance shop. Customized tooling is especially valuable to
Hudson because customers cannot easily switch lock suppliers without incurring
substantial costs associated with the design and manufacture of new molds.
Hudson sells mainly to OEMs such as IBM, AT&T and Herman Miller. In
addition, Hudson sells to postal services in Canada and the United States.
The top 10 customers represented about 39% of Hudson's net sales in 1995. In
addition to OEMs, Hudson sells to the locksmith trade industry through a
distributor.
The $150 million medium/low security lock industry is mature and highly
fragmented with a stable number of well-established competitors. Quality and
service are important selling points. Price is less important due to the
lock's small value relative to the customer's complete product. Foreign
competition is not strong as a result of the customized nature of the locks.
Major competitors are Chicago Lock, National Cabinet Lock, Fort Lock and ESP
Corporation.
Beemak. Beemak, which was founded in 1951 and acquired by the Company
in July 1989, is an integrated manufacturer of specialty "take-one" point-of-
purchase brochure, folder and application display holders. Beemak sells these
proprietary products to approximately 30,000 customers around the world. In
addition, Beemak produces a small amount of custom injection molded plastics
parts for outside customers on a contract manufacturing basis.
Beemak's products are both injection molded and custom fabricated.
Beemak has molds made by outside suppliers. The manufacturing process
consists primarily of the injection molding of polystyrene plastic and the
fabrication of plastic sheets. Beemak also provides silk screening of decals
and logos onto the final product.
Beemak has no sales force. All sales originate from Beemak's extensive
on-going advertising campaign and reputation. Beemak sells to distributors,
major companies, and even competitors which resell the product under a
different name. Beemak has been very successful providing excellent service
on orders of all sizes, especially small orders. Beemak's average order size
was approximately $300 in 1995.
The display holder industry is very fragmented, consisting of a few
other known holder and display firms and regionally-based sheet fabrication
shops. Beemak has benefited from the growth in "direct" advertising budgets
at major companies. Significant advertising dollars are spent each year on
direct mail campaigns, point-of-purchase displays and other forms of non-media
advertising.
Backlog
As of December 31, 1995, the Company had a backlog of approximately
$53 million, compared with $32 million as of December 31, 1994. The current
backlog is primarily due to Imperial's motor sales, Merkle-Korff's motor
sales, and Parsons' McDonnell Douglas Helicopter Co. and Boeing contracts.
Management believes that the backlog may not be indicative of future sales.
Seasonality
The Company's aggregate business has a certain degree of seasonality.
SPAI's, Welcome Home's and Riverside's sales are somewhat stronger towards
year-end due to the nature of their products. Calendars have an annual cycle
while home furnishing accessories and bibles and religious books are popular
as holiday gifts.
Research and Development
As a general matter, the Company has businesses that do not require
substantial capital or research and development expenditures. However,
development efforts are targeted at certain of the Subsidiaries as market
opportunities are identified. None of these subsidiary development efforts
require substantial resources from the Company.
Patents, Trademarks, Copyrights and Licenses
Sate-Lite has U.S. patents for certain elements of its triangular flares
and for securing reflectors on bicycle wheels. Dura-Line has a U.S. patent
for producing a form of innerduct which is lubricated to permit easier
installation of fiber optic cable. The Company also owns and licenses other
patents, trademarks and copyrights. However, management believes that none
of the Subsidiaries' operations is dependent to any significant extent upon
any single or related group of patents, trademarks or copyrights.
Employees
As of December 31, 1995, the Company and the Subsidiaries employed
approximately 5,150 people. Approximately 840 of these employees were members
of labor unions at Sate-Lite, Gear, Imperial, SPAI, Merkle-Korff, and Dura-Line.
None of the collective bargaining agreements covering the Company's
union employees are currently under negotiation. These Subsidiaries have not
experienced any work stoppages in the past five years as a result of labor
disruptions. The Company believes that the Subsidiaries' relations with its
employees are good.
Environmental Regulations
The Company is subject to certain federal, state and local environmental
laws and regulations. DACCO is a potentially responsible party ("PRP") at the
John P. Saad & Sons site in Nashville, Tennessee (the "Saad Site").
DACCO and a number of other PRPs have entered into a consent agreement
with the Environmental Protection Agency (the "EPA"), dated April 18, 1990,
relating to the clean-up of the Saad Site (the "Consent Agreement"). All work
was completed under this consent agreement. DACCO's interim allocation of
expenses relating to the clean up is currently 1.48 percent. Total expenses
incurred by the PRP group through January of 1996 are approximately $3.6
million. These expenses include removal costs, engineering and attorney fees,
but do not include administrative oversight costs incurred by the EPA or the
State of Tennessee ("the State"). The EPA and the State have incurred
administrative oversight costs through January 1996 of approximately $275,000
and $50,000 respectively.
Additional work under the Consent Agreement proceeded under a Unilateral
Administrative Order for Removal Response Activities dated July 28, 1995.
This work has been completed. It is not likely that the EPA will make any
further removal requirements. Based upon DACCO's allocation of expenses
relating to the clean up, the Company believes that the liabilities relating
to the Saad Site are not material to DACCO or the Company.
Item 2. PROPERTIES.
The Company leases approximately 18,950 square feet of office space for
its headquarters in Illinois. The principal properties of each Subsidiary of
the Company, the location, the primary use, the capacity, and ownership status
thereof, are set forth in the table below:
Square Owned/
Company Location Use Feet Leased
AIM........... Sunrise, FL Manufacturing/Administration 28,000 Leased
Beemak........ Gardena, CA Manufacturing (2 buildings) 34,500 Leased
Cambridge..... Windsor, CT Manufacturing 7,000 Leased
DACCO......... Cookeville, TN Administration/Manufacturing 140,000 Owned
Huntland, TN Manufacturing 65,000 Owned
Rancho Cucamonga, CA Manufacturing 40,000 Owned
Dura-Line..... Middlesboro, KY Manufacturing/Administration 31,000 Owned
Grimsby, U.K. Manufacturing/Administration 30,000 Owned
Sparks, NV Manufacturing 20,000 Owned
Zlin, Czech Republic Manufacturing/
Administration 10,000 Leased
Gear.. ....... Grand Rapids, MI Manufacturing/Administration/
Storage 38,000 Owned
Hudson........ Hudson, MA Manufacturing/Administration 218,000 Owned
Grand Rapids, MI Storage 5,000 Leased
Imperial...... Akron, OH Manufacturing/Administration 53,000 Owned
Middleport, OH Manufacturing 85,000 Owned
Northampton, OH Manufacturing 60,000 Leased
Merkle-Korff.. Des Plaines, IL Manufacturing/Administration 35,000 Leased
Des Plaines, IL Manufacturing/Administration 30,000 Leased
Richland Center, WI Manufacturing/
Administration 45,000 Leased
Pamco......... Des Plaines, IL Manufacturing/Administration 24,500 Owned
Parsons....... Parsons, KS Manufacturing/Administration 97,500 Owned
Riverside..... Iowa Falls, IA Distribution/Administration 65,900 Leased
Sparks, NV Distribution 35,500 Leased
Sate-Lite..... Niles, IL Manufacturing/Administration 120,000 Leased
Scott......... Alamogordo, NM Manufacturing/Administration/ 15,000 Leased
Storage
SPAI.......... Red Oak, IA Manufacturing/Administration
(four buildings) 136,500 Owned
Coshocton, OH Manufacturing/Administration 240,000 Owned
Valmark....... Fremont, CA Manufacturing/Administration 46,000 Leased
Fremont, CA Manufacturing/Administration 15,000 Leased
Welcome Home.. Wilmington, NC Administration/Storage 18,000 Leased
(two buildings)
DACCO also owns or leases thirty-one distribution centers, which average
3,000 to 5,000 square feet in size. DACCO maintains four distribution centers
in Florida, California, and Tennessee, two distribution centers in Illinois,
Arizona, Michigan, and Alabama, and the remaining distribution centers are
located in Colorado, Indiana, Minnesota, Missouri, Nebraska, New Jersey, West
Virginia, Ohio, Oklahoma, South Carolina, and Texas.
Welcome Home also leases 215 retail stores, which range from 2,400 to
4,600 square feet in size. Welcome Home has stores in 41 states in the United
States.
AIM's Sunrise, Florida facility is leased from the President of AIM, and
Merkle-Korff's facilities are leased from the President of Merkle-Korff. The
Company believes that the terms of these leases are comparable to those which
would have been obtained by the Company had these leases been entered into
with an unaffiliated third party.
None of the Company's significant existing leases are scheduled to
expire prior to 1997. The Company believes that its existing leased
facilities are adequate for the operations of the Company and its
subsidiaries.
Item 3. LEGAL PROCEEDINGS
The Subsidiaries are parties to various legal actions arising in the
normal course of their business. The Company believes that the disposition
of such actions individually or in the aggregate will not have a material
adverse effect on the consolidated financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1995.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The only authorized, issued and outstanding class of capital stock of
the Company is Common Stock. There is no established public trading
market for the Company's Common Stock.
(b) At December 31, 1995, there were 17 record holders of the Company's
Common Stock.
(c) The Company has not declared any cash dividends on its Common Stock
since the Company's formation in May, 1988. The Indenture (the
"Indenture"), dated as of July 23, 1993, by and between the Company and
First Bank National Association, as Trustee, with respect to the 10 3/8%
Senior Notes and the 11 3/4% Senior Subordinated Discount Debentures
contain restrictions on the Company's ability to declare or pay
dividends on its capital stock. The Indenture prohibits the declaration
or payment of any dividends or the making of any distribution by the
Company or any Restricted Subsidiary (as defined in the Indenture) other
than dividends or distributions payable in stock of the Company or a
Subsidiary and other than dividends or distributions payable to the
Company.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected operating, balance sheet and other
data of the Company and its subsidiaries as of and for the five years ended
December 31, 1995. The financial data of the Company and its subsidiaries as
of and for the years ended December 31, 1991 through 1995 were derived from
the consolidated financial statements of the Company and its subsidiaries.
Year Ended December 31,
(Dollars in thousands)
1995 1994 1993 1992 1991
Operating data:(1)
Net sales.................. $507,311 $424,391 $358,611 $327,321 $295,140
Cost of sales, excluding
depreciation.............. 320,653 262,730 221,518 202,215 184,808
Gross profit, excluding
depreciation.............. 186,658 161,661 137,093 125,106 110,332
Selling, general and
administrative expense.... 121,371 97,428 80,496 75,060 68,217
Operating income .......... 32,360 42,944 36,387 22,762 21,604
Interest expense........... 46,974 40,887 41,049 37,024 39,272
Interest income ........... (2,841) (1,471) (1,845) (963) (1,881)
Income (loss) before income
taxes, minority interest,
and extraordinary items... (11,773) 27,689 (2,817) (13,299) (15,787)
Income (loss) before extra-
ordinary items........... (7,470) 23,741 (3,483) (14,412) (17,407)
Net income (loss) (2) $ (7,470)$ 23,741 $(29,675)$(14,412) $(17,407)
Balance sheet data (at end of period):
Cash and cash equivalents $ 41,253 $ 56,386 $ 68,273 $ 8,886 $ 12,000
Working capital........... 99,675 123,395 121,490 65,694 78,048
Total assets.............. 532,384 398,474 338,509 268,674 270,142
Long-term debt
(less current portion)... 497,977 380,966 356,981 262,055 268,877
Shareholders' equity (net
capital deficiency)(3)... $(74,479)$(66,867)$(90,669)$(60,873) $(47,976)
(1) The Company has acquired a diversified group of operating companies over
the five year period which significantly affects the comparability of
the information shown above.
(2) Net loss in 1993 includes an extraordinary loss of $26,192 related to
the Company's refinancing. Net income in 1994 includes a gain from the
sale of a partial interest in Welcome Home of $24,161. Net loss in 1995
includes $6,929 of restructuring and non-recurring charges related to
Welcome Home.
(3) No cash dividends on the Company's Common Stock have been declared or
paid.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Historical Results of Operations
Summarized below are the historical net sales, operating income and
operating margin (as defined below) for each of the Company's business groups
for the fiscal years ended December 31, 1995, 1994 and 1993. This discussion
should be read in conjunction with the historical consolidated financial
statements and the related notes thereto contained elsewhere in this Annual
Report.
In 1995, The Company's business segments were realigned into five
distinct groups. Prior period results were also realigned into these new
groups in order to provide accurate comparisons between periods.
Year ended December 31,
1995 1994 1993
(dollars in thousands)
Net Sales:
Specialty Printing & Labeling.. $ 96,514 $ 82,828 $ 60,640
Motors and Gears............... 54,218 36,854 32,241
Connectors..................... 22,744 21,325 18,880
Welcome Home................... 93,166 81,654 61,633
Consumer and Industrial Products 240,669 201,730 185,217
Total ..................... $507,311 $424,391 $358,611
Operating Income (1):
Specialty Printing & Labeling.. $ 8,067 $ 5,522 $ 1,343
Motors and Gears............... 12,236 9,484 7,300
Connectors.. .................. 5,478 5,444 3,168
Welcome Home................... (10,066) 7,076 6,581
Consumer and Industrial Products 34,283 28,992 26,755
Total .................... $ 49,998 $ 56,518 $ 45,147
Operating Margin (2):
Specialty Printing & Labeling.. 8.4% 6.7% 2.2%
Motors and Gears............... 22.6% 25.7% 22.6%
Connectors..................... 24.1% 25.5% 16.8%
Welcome Home................... (10.8)% 8.7% 10.7%
Consumer and Industrial Products 14.2 % 14.4% 14.4%
Combined (1)................... 9.9 % 13.3% 12.6%
(1) Before corporate overhead of $17,638, $13,574 and $8,760 for the years
ended December 31, 1995, 1994 and 1993, respectively.
(2) Operating margin is operating income divided by net sales.
Specialty Printing & Labeling. As of December 31, 1995, the Specialty
Printing and Labeling group consisted of SPAI, Valmark and Pamco.
1995 Compared to 1994. Net sales increased $13.7 million or 16.5%.
Operating income increased $2.5 million or 46.1%. The increase in sales was
due to increased sales of all product lines at Valmark, $8.0 million, and
twelve months of sales at Pamco (Pamco was acquired in May of 1994), $6.7
million, partially offset by a decrease in ad-specialty sales at SPAI, $1.0
million. Operating margin increased to 8.4% from 6.7% due primarily to
increased sales.
1994 Compared to 1993. Net sales increased $22.2 million or 36.6%.
Operating income increased $4.2 million or 311.2%. The increase in sales was
due to the acquisitions of Valmark and Pamco in January and May of 1994
respectively, which added $23.0 million in sales and $3.0 million in operating
income. The operating margin increased to 6.7% from 2.2% due to higher
margins at Valmark and Pamco than SPAI.
Motors and Gears. As of December 31, 1995, the Motors and Gears group
consisted of Imperial, Scott, Gear and Merkle-Korff.
1995 Compared to 1994. Net sales increased $17.4 million or 47.1%.
Operating income increased $2.8 million or 29.0%. The increase in sales was
partially due to the acquisition of Merkle-Korff in September 1995 which added
$14.1 million to the segment's net sales. In addition, sales of permanent
magnet motors at Imperial increased $3.2 million. Operating margin decreased
to 22.6% from 25.7% due to increased material costs at Imperial, and the
amortization of goodwill at Merkle-Korff.
1994 Compared to 1993. Net sales increased $4.6 million or 14.3%.
Operating income increased $2.2 million or 29.9%. Increased sales were due
to higher permanent magnet motor sales at Imperial, $2.5 million, job shop and
gear box sales at Gear, $1.5 million, and motors at Scott, $.6 million.
Operating margin increased to 25.7% from 22.6% due to continuing cost cutting
measures.
Connectors. As of December 31, 1995, the Connectors group consisted of
AIM and Cambridge.
1995 Compared to 1994. Net sales increased $1.4 million or 6.7%.
Operating income remained unchanged from 1994. The sales increase was due to
increased connector sales at AIM, $1.5 million. Operating margin decreased
to 24.1% from 25.5% due to slightly lower margin export sales at AIM.
1994 Compared to 1993. Net sales increased $2.4 million or 13.0%.
Operating income increased $2.3 million or 71.8%. The sales increase was due
to increased sales of electronic connectors at AIM and Cambridge, $1.9
million, and $.5 million, respectively. Operating income increased due to
various cost cutting measures which also helped increase the operating margin
to 25.5% from 16.8%.
Welcome Home.
1995 Compared to 1994. Net sales increased $11.5 million or 14.1%.
Operating income decreased $17.1 million when 1995 is compared to 1994. The
increase in net sales was due to 26 net additional stores in 1995. The
decrease in operating income was due to the restructuring and other non-
recurring charges of $6.9 million, an 8.1% decrease in same store sales,
increased markdowns leading to a lower gross profit and higher corporate
expenses. The above items also negatively impacted operating margin which
dropped to -10.8% from 8.7%.
1994 Compared to 1993. Net sales increased $20.0 million, or 32.5%.
Operating income increased $.5 million or 7.5%. The increase in sales was due
to 31 net additional stores and an 8.4% increase in same store sales.
Operating margin decreased to 8.7% from 10.7%.
Consumer and Industrial Products. As of December 31, 1995, the Consumer
and Industrial Products group consisted of DACCO, Sate-Lite, Riverside, Dura-
Line, Parsons, Hudson and Beemak.
1995 Compared to 1994. Net sales increased $38.9 million or 19.3%.
Operating income increased $5.3 million or 18.2%. The sales increase was due
to higher sales of rebuilt converters and other parts at DACCO, $1.0 million,
and $1.6 million, respectively; foreign bicycle sales at Sate-Lite, $.2
million; books, audio tapes and music, and contract distribution at Riverside,
$.1 million, $.4 million, and $2.4 million, respectively; titanium and
fabricated parts at Parsons, $1.8 million, and $.2 million, respectively;
Innerduct sales at Dura-Line, $31.2 million; and POGs and fabricated products
at Beemak, $2.0 million and $.5 million, respectively. These increases were
partially offset by a decrease in domestic bicycle sales at Sate-Lite, $3.1
million. Operating margin was relatively unchanged at 14.2% versus 14.4%.
1994 Compared to 1993. Net sales increased $16.5 million or 8.9%.
Operating income increased $2.2 million or 8.4%. The increase was due to
increased sales of hard parts and soft parts at DACCO of $3.8 million and $1.1
million, respectively; Bibles and religious books, music and audio tapes and
contract distribution sales at Riverside of $2.9 million, $1.3 million and
$4.0 million respectively; warning triangles and colorants at Sate-Lite, $.5
million; and Innerduct at Dura-Line, $6.0 million. These increases were
partially offset by decreases in titanium hot formed and fabricated parts at
Parsons, $1.7 million and $1.3 million, respectively. Operating margin was
relatively unchanged at 14.4% versus 14.5%.
Consolidated Operating Results. (see Consolidated Statements of
Operations).
1995 Compared to 1994. Net sales increased 19.5% and operating income
decreased 24.6%. The sales increase was primarily due to the increased number
of stores at Welcome Home, increased sales of Innerduct at Dura-Line,
shielding devices, labels and membrane switches at Valmark, and the
acquisition of Merkle-Korff in September 1995. The operating income decrease
was partially due to the restructuring and other non-recurring charges at
Welcome Home. Management fees and other increased $2.1 million due to higher
management fees and the write-down of the Dize note receivable.
Interest expense increased $6.1 million due to higher outstanding debt
balances from additional capital leases and new third party debt held at
Welcome Home, Merkle-Korff and SPL.
Interest income increased $1.8 million due to higher average cash
balances.
1994 Compared to 1993. Net sales and operating income increased 18.3%
and 18.0%, respectively. The sales increase was due to the increased number
of stores and an 8.4% increase in same store sales at Welcome Home, increase
in torque converter sales at DACCO, bibles and religious books at Riverside,
and sales of Innerduct at Dura-Line. The operating income increase was due
to the increased sales levels and manufacturing efficiencies.
A gain of $24.2 million was recorded in 1994 in connection with the sale
of Welcome Home common stock. A total of 2.9 million shares, out of the 8.5
million outstanding, were sold at an initial public offering price of $11.00
per share.
Liquidity and Capital Resources
The Company had approximately $99.7 million of working capital at the
end of 1995 compared to approximately $123.4 million at the end of 1994. The
decrease in working capital from 1994 to 1995 was due to lower cash balances,
higher notes payable balance, higher accounts payable, and higher current
portion of long-term debt, partially offset by higher accounts receivable and
inventory balances.
The Company has acquired businesses through leveraged buyouts, and as
a result has significant debt in relation to total capitalization. See
"Business". Most of this acquisition debt was initially financed through the
issuance of bonds which were subsequently refinanced in 1993. See Note 10 to
the Consolidated Financial Statements.
In connection with each acquisition of a subsidiary, the Subsidiary
entered into intercompany notes, and intercompany management and tax sharing
agreements, which permit the subsidiaries, including the majority-owned
subsidiaries, substantial flexibility in moving funds from the subsidiaries
to the Company.
Management expects continued growth in net sales and operating income
in 1996. Capital spending levels in 1996 are anticipated to be consistent
with 1995 levels and, along with working capital requirements, will be
financed internally out of operating cash flow. Operating margins and
operating cash flow are expected to be favorably impacted by ongoing cost
reduction programs, improved efficiencies and sales growth. Management
believes that the Company's cash on hand and anticipated funds from operations
will be sufficient to cover its working capital, capital expenditures, debt
service requirements and other fixed charges obligations for at least the next
12 months.
The Company's net cash provided by operating activities for the year
ended December 31, 1995 decreased $1.0 million versus the same period in 1994.
Cash provided by operating activities decreased due to the absence of a gain
on the sale of a partial interest in a subsidiary in 1995, $24.2 million, an
increase in restructuring charges, $5.9 million, an increase in other non-
recurring charges, $1.0 million, an increase in depreciation and
amortization, $2.6 million, an increase in non-cash interest, $1.2 million,
a lower increase in inventory, $8.0 million, a lower increase in prepaids and
other current assets, $1.1 million, a lower increase in non-current assets,
$1.4 million, and an increase in non-current liabilities, $.7 million. The
sources of operating cash were offset by a net loss of $7.5 million in 1995
compared to net income of $23.7 million in 1994, lower minority interest $4.5
million, a higher increase in accounts receivable, $1.7 million, an increase
in the benefit from deferred income taxes, $4.2 million, and a lower increase
in accounts payable, accrued liabilities and advanced deposits, $5.5 million.
The net cash used in investing activities for the year ended December
31, 1995 increased $112.4 million versus the same period in 1994. This
increase was due to higher capital expenditures, $3.2 million, higher notes
receivable from affiliates, $11.2 million, higher acquisition of subsidiaries
due to the Merkle-Korff transaction in 1995 versus the Valmark and Pamco
transactions in 1994, $66.3 million, the absence of the proceeds from sale of
a partial interest in a subsidiary in 1995, $26.5 million, lower cash acquired
in the purchase of subsidiaries, $.3 million, higher acquisition of minority
interests, $4.0 million, and the investment in Fannie May Holdings, $1.7
million, partially offset by proceeds from an asset sale, $.7 million.
The net cash provided by financing activities for the year ended
December 31, 1995 increased $110.1 million versus the same period in 1994.
The increase was due to the SPL Holdings debt issuance, $33.0 million, the M-K
Holdings debt issuance, $72.5 million, proceeds from lines of credit, $7.2
million, and other borrowing, $1.5 million, partially offset by higher
financing costs, $.8 million, and higher long-term debt payments, $3.4
million.
The Company's net cash provided by operating activities for the year
ended December 31, 1994 decreased $11.5 million versus the same period in
1993. This decrease was due to the gain on sale of a partial interest in a
subsidiary of $24.2 million, the absence of an extraordinary loss in 1994
versus 1993 of $26.2 million, an increase in the benefit from deferred tax
assets, $1.0 million, higher increase in accounts receivable of $5.5 million,
a higher increase in inventories of $9.2 million, a higher increase in non-
current assets of $1.1 million, and a lower increase in accounts payable and
accrued liabilities of $8.4 million, offset by net income of $23.7 million in
1994 versus 1993's net loss of $29.7 million, higher depreciation and
amortization of $1.3 million, higher minority interest of $2.7 million, an
increase in non-cash interest of $5.7 million, and higher advance deposits of
$.7 million.
The net cash used in investing activities for the year ended December
31, 1994 increased $7.7 million versus the same period in 1993. The increase
was due to an increase in notes receivable from affiliates of $2.2 million and
the acquisition of Valmark and Pamco of $35.9 million, offset by a decrease
in capital expenditures of $1.5 million, a decrease in acquisitions of
minority interest and other, of $1.3 million, the gain on sale of a partial
interest in a subsidiary of $26.5 million, and the cash acquired in the
Valmark and Pamco purchases of $1.0 million.
The net cash used in financing activities decreased $52.0 million versus
the same period in 1993. The decrease was due to the net proceeds of the 1993
debt offering of $62.4 million and an increase in repayment of long-term debt
of $1.5 million offset by a decrease in deferred financing costs of $11.9
million.
The Company is, and expects to continue to be, in compliance with the
provisions of the Indentures relating to the Company's Senior Notes and Senior
Subordinated Discount Debentures.
None of the subsidiaries require significant amounts of capital spending
to sustain their current operations or to achieve projected growth.
Impact of Inflation
General inflation has had only a minor effect on the operations of the
Company and its internal and external sources for liquidity and working
capital, as the Company has been able to increase prices to reflect cost
increases, and expects to be able to do so in the future.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
Reports of Independent Auditors .................. 25
Consolidated Balance Sheets as of December 31,
1995 and 1994................................. 27
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993.. 28
Consolidated Statements of Changes in
Shareholders' Equity (Net Capital Deficiency)
for the years ended December 31, 1995, 1994
and 1993...................................... 29
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993.. 30
Notes to Consolidated Financial Statements........ 32
JORDAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 41,253 $ 56,386
Accounts receivable, net of allowance
of $1,306 and $1,058 in 1995 and 1994,
respectively 72,324 57,589
Inventories 84,259 76,157
Prepaid expenses and other current assets 7,566 7,053
Total current assets 205,402 197,185
Property, plant and equipment, net 91,422 70,403
Investments in and advances to affiliates 23,087 7,941
Goodwill, net 180,315 88,345
Other assets 32,158 34,600
Total Assets $532,384 $398,474
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable - lines of credit $ 16,239 $ -
Accounts payable 49,086 42,225
Accrued liabilities 26,867 27,670
Advance deposits 1,830 1,999
Current portion of long-term debt 11,705 1,896
Total current liabilities 105,727 73,790
Long-term debt 497,977 380,966
Other noncurrent liabilities 2,402 2,048
Deferred income taxes - 3,507
Minority interest 757 5,030
Shareholders' equity (net capital deficiency):
7% cumulative preferred stock at liquidation
value of $10,000 per share:
issued and outstanding - 187.5 shares 1,875 1,875
Common stock $.01 par value:
authorized - 100,000 shares
issued and outstanding - 93,501 shares 1 1
Additional paid-in capital 1,097 1,097
Retained earnings (accumulated deficit) (77,452) (69,840)
Total shareholders' equity (net capital
deficiency) (74,479) (66,867)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $532,384 $398,474
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year ended December 31,
1995 1994 1993
Net sales $507,311 $424,391 $358,611
Cost of sales, excluding depreciation 320,653 262,730 221,518
Selling, general and administrative expense 121,371 97,428 80,496
Depreciation 12,891 10,568 9,059
Amortization of goodwill and other
intangibles 8,793 8,531 8,743
Management fees and other 4,314 2,190 2,408
Restructuring charges 5,913 - -
Other non-recurring charges 1,016 - -
Operating income 32,360 42,944 36,387
Other (income) and expenses:
Interest expense 46,974 40,887 41,049
Interest income (2,841) (1,042) (1,845)
Interest income from affiliate - (429) -
Gain on sale of a partial interest
in a subsidiary - (24,161) -
Total other expenses 44,133 15,255 39,204
(Loss) income before income taxes, minority
interest, and extraordinary items (11,773) 27,689 (2,817)
(Benefit) provision for income taxes (2,446) 1,332 707
(Loss) income before minority interest and
extraordinary items (9,327) 26,357 (3,524)
Minority interest (1,857) 2,616 (41)
(Loss) income before extraordinary items (7,470) 23,741 (3,483)
Extraordinary loss - - (26,192)
Net (loss) income $(7,470) $ 23,741 $(29,675)
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(dollars in thousands)
Total
Share-
7% Cumulative Retained holders'
Preferred Stock Common Stock Earnings Equity
Additional (Accumu- (Net Cap-
Number of Number of Paid-in lated ital Def-
Shares Amount Shares Amount Capital Deficit) iciency)
Balance at January 1, 1993 187.5 $1,875 93,501 $1 $1,097 $(63,846) $(60,873)
Net loss - - - - - (29,675) (29,675)
Cumulative translation
adjustment - - - - - (59) (59)
Dividends declared on
preferred stock of
subsidiary - - - - - (62) (62)
Balance at December 31, 1993 187.5 1,875 93,501 1 1,097 (93,642) (90,669)
Net Income - - - - - 23,741 23,741
Cumulative translation
adjustment - - - - - 201 201
Dividends declared on
preferred stock of
subsidiary - - - - - (140) (140)
Balance at December 31, 1994 187.5 1,875 93,501 1 1,097 (69,840) (66,867)
Net loss - - - - - (7,470) (7,470)
Cumulative translation
adjustment - - - - - (97) (97)
Dividends declared on
preferred stock of
subsidiary - - - - - (45) (45)
Balance at December 31, 1995 187.5 $1,875 93,501 $1 $1,097 $(77,452) $(74,479)
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
1995 1994 1993
Cash flows from operating activities:
Net (loss) income $( 7,470) $23,741 $(29,675)
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Gain on sale of a partial interest
in a subsidiary - (24,161) -
Extraordinary loss - - 26,192
Restructuring charges 5,913 - -
Other non-recurring charges 1,016 - -
Amortization of deferred financing
costs 1,743 1,405 1,363
Depreciation and amortization 21,684 19,099 17,802
Amortization of debt discount - - 162
(Benefit from) provision for
deferred income taxes (4,247) (962) (40)
Minority interest (1,857) 2,616 (41)
Non-cash interest 10,694 9,544 3,868
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable (8,084) (6,362) (820)
Inventories (5,430) (13,394) (4,208)
Prepaid expenses and other current
assets (170) (1,317) (1,421)
Non-current assets (2,020) (2,495) (1,386)
Accounts payable, accrued liabilities,
and other current liabilities 3,856 9,247 17,660
Advance deposits 169 303 (393)
Non-current liabilities 679 - -
Other (266) (82) (333)
Net cash provided by operating activities 16,210 17,182 28,730
Cash flows from investing activities:
Capital expenditures (15,276) (12,112) (13,640)
Notes receivable from affiliates (13,424) (2,254) (35)
Acquisitions of subsidiaries (102,125) (35,872) -
Cash acquired in purchase of subsidiaries 696 953 -
Net proceeds from sale of a partial interest
in a subsidiary - 26,544 -
Acquisitions of minority interests and other (6,117) (2,143) (3,483)
Investment in Fannie May Holdings (1,722) - -
Proceeds from asset sale 732 - -
Net cash (used in) investing activities (137,236) (24,884) (17,158)
(Continued on following page.)
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(continued)
Year Ended December 31,
1995 1994 1993
Cash flows from financing activities:
Proceeds of debt issuance - SPL Holdings,
Inc. $ 33,000 $ - $350,000
Proceeds of debt issuance - MK Holdings,
Inc. 72,500 - -
Payments under the revolving credit
facilities, net - -
(66,950)
Purchase of Senior Subordinated Notes - - (203,300)
Proceeds from lines of credit, net 7,213 - -
Premium and consent fee on purchase
of Senior Subordinated Notes - - (17,347)
Payment of financing costs (2,322) (1,561) (13,457)
Repayment of long-term debt (6,020) (2,624) (1,131)
Other borrowing 1,522 - -
Net cash provided by (used in) financing
activities 105,893 (4,185) 47,815
Net (decrease) increase in cash and cash
equivalents (15,133) (11,887) 59,387
Cash and cash equivalents at beginning
of year 56,386 68,273 8,886
Cash and cash equivalents at end of year $ 41,253 $ 56,386 $ 68,273
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 33,360 $ 29,839 $ 24,405
Income taxes, net $ 1,801 $ 2,213 $ 1,097
Noncash investing activities:
Capital leases $ 19,151 $ 7,422 $ 2,293
See accompanying notes.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 1 - Organization
Jordan Industries, Inc. (the Company), an Illinois corporation, was formed by
Chicago Group Holdings, Inc. on May 26, 1988 for the purpose of combining into
one corporation certain companies in which partners and affiliates of The
Jordan Company (the Jordan Group) acquired ownership interests through
leveraged buy-outs. Chicago Group Holdings, Inc. was formed on February 8,
1988 and had no operations. The Company was merged with Chicago Group
Holdings, Inc. on May 31, 1988 with the Company being the surviving company.
The Company's business is divided into five groups. The Specialty Printing
and Labeling group consists of Sales Promotion Associates, Inc. ("SPAI"),
Valmark Industries, Inc. ("Valmark"), and Pamco Printed Tape and Label Co.,
Inc. ("Pamco"). The Motors and Gears group consists of The Imperial Electric
Company ("Imperial") and its subsidiaries, The Scott Motors Company ("Scott")
and Gear Research, Inc. ("Gear"), and Merkle-Korff Industries, Inc. ("Merkle-
Korff"). The Connectors group consists of AIM Electronics Corporation ("AIM")
and Cambridge Products Corporation ("Cambridge"). Welcome Home, Inc.
("Welcome Home") is managed on a stand-alone basis and the remaining
businesses comprise the Company's Consumer and Industrial Products group.
This group consists of DACCO, Incorporated ("DACCO"), Sate-Lite Manufacturing
Company ("Sate-Lite"), Riverside Book and Bible House, Inc. ("Riverside"),
Dura-Line Corporation ("Dura-Line"), Parsons Precision Products, Inc.
("Parsons"), Hudson Lock, Inc. ("Hudson"), and Beemak Plastics, Inc.
("Beemak"). All of the foregoing corporations are collectively referred to
herein as the "Subsidiaries," and individually as a "Subsidiary."
Note 2 - Significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first-in, first-out (FIFO) cost.
Depreciation and amortization
Property, plant and equipment - Depreciation and amortization of property,
plant and equipment is calculated using estimated useful lives, or over the
life of the underlying leases, if less, using the straight-line method.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The useful lives of plant and equipment for the purpose of computing book
depreciation are as follows:
Machinery and equipment 3-10 years
Buildings 7-35 years
Furniture & fixtures 5-10 years
Leaseholds Life of Lease
Goodwill - Goodwill is being amortized on the straight-line basis principally
over 40 years. Goodwill at December 31, 1995 and 1994 is net of accumulated
amortization of $15,845, and $12,416, respectively. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may
be impaired. If this review indicates that goodwill will not be recoverable,
as determined based on the undiscounted cash flows of the entity acquired over
the remaining amortization period, the Company's carrying value of the
goodwill will be reduced by the estimated shortfall of cash flows.
Other assets
Patents are amortized over the remainder of their legal lives, which
approximate their useful lives, on the straight-line basis. Deferred
financing costs amounting to $9,703 and $11,211 net of accumulated
amortization of $3,686 and $1,943 at December 31, 1995 and 1994, respectively,
are amortized over the terms of the loans or, if shorter, the period such
loans are expected to be outstanding. Non-compete covenants and customer
lists amounting to $5,705 and $7,113, net of accumulated amortization of
$42,648 and $40,690 at December 31, 1995 and 1994, respectively, are amortized
on the straight-line basis over their estimated useful lives, ranging from
three to ten years. Organizational costs are amortized over five years.
Adoption of FAS 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
FAS 121 requires, among other things, that the Company consider whether
indicators of impairment of long-lived assets held for use are present, that
if such indicators are present the Company determine whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount, and if so, that the Company recognize an
impairment loss based on the excess of the carrying amount of the assets over
their fair value.
The Company adopted the provisions of FAS 121 in the fourth quarter of 1995.
Accordingly, the Company evaluated the ongoing value of its property and
equipment at that time. It was determined Welcome Home had certain leasehold
improvements and furniture and fixtures located in unprofitable stores
with a carrying value of $1,016 that were impaired and that given the nature
of such items, their estimated fair value was insignificant. Accordingly,
Welcome Home recorded an impairment loss on such assets in the fourth quarter
of 1995 of $1,016, which is included in "other non-recurring charges" in the
1995 Statement of Operations.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Income taxes
The Company provides for deferred income taxes as temporary differences arise
in recording income and expenses between financial reporting and tax
reporting.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
At December 31, 1995, the Company's cash balance included $1,600 which is
being held as collateral with respect to a capital lease. A certain cash
balance is required to remain intact throughout the term of the lease which
expires on November 17, 1998. An additional $3,000 is being held as
collateral with regard to the Company's investment in Fannie May.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in the 1994 financial statements have been reclassified to
conform with 1995 presentation.
Realignment of segment reporting
In 1995, the Company's business segments were realigned into five distinct
groups. The Company believes that this new reporting format will better
facilitate financial management due to the grouping of similar companies.
Prior period results were also reclassified into these new groups in order to
provide accurate comparisons between periods.
Note 3 - Restructuring charges
In the fourth quarter of 1995, Welcome Home adopted a restructuring plan. The
major elements of the plan include a change in Welcome Home's merchandising
strategy and the liquidation of merchandise which is not consistent with that
strategy, closing unprofitable stores, and strengthening the Company's
executive management team and information systems as necessary to successfully
implement the above strategies. Accordingly, Welcome Home recorded the
following restructuring charges.
(i) Welcome Home recorded a charge of $2,379 against its inventory to
reflect the reduction in the value of items owned as of December
31, 1995 which management determined did not fit with Welcome
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Home's strategy and, accordingly, will be liquidated at reduced
prices in 1996.
(ii) Welcome Home recorded a charge of $2,816 against its recorded
investment in its information systems as of December 31, 1995.
Management determined that these systems will not support its
merchandising and other strategies and, therefore, intends to
replace these systems in 1996.
(iii) Welcome Home recorded a charge of $526 to reflect the cost of
planned store closings in 1996, representing primarily its
recorded investment in the related furniture, fixtures and
leasehold improvements.
(iv) Welcome Home recorded a charge and accrued liability of $192
related to payments due to a former executive in accordance with
its employment and severance agreement with that individual.
Note 4 - Inventories
Inventories consist of:
Dec. 31, Dec. 31,
1995 1994
Raw materials $ 24,251 $16,695
Work-in-process 5,968 6,193
Finished goods 54,040 53,269
$ 84,259 $76,157
Note 5 - Property, plant and equipment
Property, plant and equipment, at cost, consists of:
Dec. 31, Dec. 31,
1995 1994
Land $ 4,365 $ 4,421
Machinery and equipment 105,188 84,091
Buildings and improvements 33,844 26,340
Furniture and fixtures 18,995 17,642
162,392 132,494
Accumulated depreciation and
amortization (70,970) (62,091)
$ 91,422 $ 70,403
Note 6 - Notes receivable from affiliates and investment in affiliate
At December 31, 1995, the Company had notes receivable from Cape Craftsmen,
Inc., a company that is controlled by the partners, principals, employees and
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
affiliates of The Jordan Company, of $6,865. This is a reduction from the
$7,941 balance at December 31, 1994.
Although this note is payable on demand, the Company does not anticipate the
repayment of principal in 1996 and, accordingly, has classified this note as
long-term. The Company believes this entity will generate adequate operating
profits and cash flow to meet principal and interest payments.
On May 15, 1995, the Company purchased from a third party $7,500 aggregate
principal amount of Subordinated Notes and 75.6133 shares of Junior Class A
PIK Preferred Stock of Fannie May Holdings, Inc. ("Fannie May") for $9,071.
The Company also acquired 151.28 shares of Common Stock of Fannie May
(representing 15.1% of the outstanding Common Stock of Fannie May on a fully
diluted basis) for $151. These shares of Fannie May Common Stock were
purchased from the John W. Jordan II Revocable Trust. On June 28, 1995, the
Company purchased from The First National Bank of Chicago $7,000 aggregate
principal amount of participation in term loans of Archibald Candy
Corporation, a wholly-owned subsidiary of Fannie May, for $7,000, and agreed
to purchase up to an additional $3,000 aggregate principal amount of such
participation, depending upon the financial performance of Fannie May. The
additional $3,000 obligation is secured by a pledge from the Company with a
$3,000 certificate of deposit purchased by the Company.
Fannie May's Chief Executive Officer is Mr. Quinn, and its stockholders
include Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher, who are
directors and stockholders of the Company, as well as other partners,
principals and associates of The Jordan Company, who are also stockholders of
the Company. Fannie May, which is also known as "Fannie May Candies", is a
manufacturer and marketer of kitchen-fresh, high-end boxed chocolates through
its 375 company-owned retail stores and through specialty sales channels.
Note 7 - Accrued liabilities
Accrued liabilities consist of:
Dec. 31, Dec. 31,
1995 1994
Accrued vacation $ 1,516 $ 1,435
Accrued bonuses 896 382
Accrued income taxes 1,874 1,404
Accrued other taxes 1,777 2,176
Accrued commissions 1,025 1,182
Accrued interest payable 13,152 12,391
Accrued payroll and payroll taxes 2,621 1,957
Accrued royalties 759 232
Accrued stock appreciation rights
and preferred stock payments - 2,876
Accrued other expenses 3,247 3,635
$26,867 $27,670
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 8 - Operating leases
Certain subsidiaries lease land, buildings, and equipment under noncancellable
operating leases.
Total minimum rental commitments under noncancellable operating leases at
December 31, 1995 are:
1996 $12,610
1997 12,274
1998 10,873
1999 9,209
2000 6,900
Thereafter 10,687
$62,553
Rental expense amounted to $11,378, $8,173 and $6,536 for 1995, 1994 and 1993,
respectively. The 1995 increase relates primarily to the additional retail
stores opened by Welcome Home in 1995 and rent expense recorded by Merkle-
Korff on its three facilities.
Note 9 - Benefit plans
Certain subsidiaries of the Company have defined benefit pension plans. The
total expense for these plans amounted to $117 and $119 in 1995 and 1994,
respectively. The subsidiaries make contributions to the plans equal to the
amounts determined by accepted actuarial methods for the defined benefit plans
and on a cents-per-hour basis for plans covering certain hourly employees.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Plan benefits are generally based on years of service and employee
compensation during the last years of employment.
The following table sets forth the status of the defined benefit plans of the
Company:
Year Ended
December 31,
1995 1994
Actuarial present value of benefit
obligations:
Vested $2,351 $1,984
Non-vested 18 16
Accumulated benefit obligation 2,369 2,000
Effect of future salary growth 570 451
Total projected benefit obligation 2,939 2,451
Assets relating to such benefits:
Market value of funded assets,
primarily invested in money
market and equity securities 2,392 2,081
Underfunded projected
benefit obligation (547) (370)
Net deferral (163) (418)
Pension liability recorded
as a long-term liability $ (710) $ (788)
The weighted average discount rates used in determining the actuarial present
value of the projected benefit obligation range from 6%-7.25% in 1995 and
7.5%-8.0% in 1994. The assumed long-term rates of return on plan assets range
from 7.5%-7.75% in 1995 and 1994. The assumed rates of compensation increase
range from 3.8%-5.0% in 1995 and 1994.
Effective January 1, 1993, an over-funded plan was terminated and one of the
under-funded plans was frozen. The termination of the overfunded plan
resulted in a $500 charge to earnings in 1993. Non-participating annuity
contracts have been purchased with the plan assets of the over-funded plan,
and various compensation plans have been instituted in place of the defined
benefit pension plans.
In January 1993 the Company established the Jordan Industries, Inc. 401(k)
Savings Plan ("the Plan"), a defined-contribution plan. The Plan covers
substantially all employees of the Company. Contributions to the Plan are
discretionary and totaled $152 in 1995 and $149 in 1994.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 10 - Debt
Long-term debt consists of:
Dec. 31, Dec. 31,
1995 1994
Notes payable (A) $ 1,907 $ 1,571
Subordinated promissory notes (B) 13,000 8,623
Capital lease obligations (C) 26,295 9,257
Bank Term Loans (D) 94,375 -
Senior Notes (E) 275,000 275,000
Senior Subordinated Discount Debentures (F) 99,105 88,411
509,682 382,862
Less current portion 11,705 1,896
$497,977 $380,966
Aggregate maturities of long-term debt at December 31, 1995 are as follows:
1996 $ 11,705
1997 13,208
1998 19,113
1999 17,769
2000 27,157
Thereafter 420,730
$509,682
A Notes payable are due in monthly or quarterly installments and
bear interest at rates up to 9%. Certain assets of the
subsidiaries are pledged as collateral for the loans.
B Subordinated promissory notes payable are due to minority interest
shareholders and former shareholders of the subsidiaries in annual
installments through 2002, and bear interest at 8%-9%. The loans
are unsecured.
C Interest rates on capital leases range from 8.3% to 14.5% and
mature in installments through 2000.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The future minimum lease payments as of December 31, 1995 under
capital leases consist of the following:
1996 $ 5,640
1997 4,987
1998 9,079
1999 3,312
2000 11,113
Thereafter 0
Total 34,131
Less amount representing interest 7,836
Present value of future minimum
lease payments $26,295
The present value of the future minimum lease payments
approximates the book value of property, plant and equipment under
capital leases at December 31, 1995.
D Bank Term Loans consist of certain indebtedness at Merkle-Korff
("Merkle-Korff Senior Notes"), and SPL ("SPL Senior Notes").
The acquisition of Merkle-Korff in September of 1995 was partially
financed by the issuance of $70,000 of term loans funded by
Banker's Trust Company. The funding is comprised of two loans,
Term Loan A ("Term A"), and Term Loan B ("Term B"). Term A
represents $43,000 of the borrowing and will bear interest at a
rate of Prime + 1.5% or LIBOR +2.75%. Term A will be repaid in
installments through 2001. Term B constitutes the remaining
$27,000 of the aggregate loan amount and bears interest at a rate
of Prime + 2.0% or LIBOR + 3.25%. Term B will be paid in
installments through 2003. Interest on both loans is payable
quarterly. At December 31, 1995, the outstanding balance of Term
A was $42,500 and the applicable interest rate was 8.625%. At
that
date, the outstanding balance on Term B was $26,875 with an
applicable interest rate of 9.125%. The Merkle-Korff Senior Notes
are secured by the stock and assets of Merkle-Korff and its
divisions.
In August 1995, SPL borrowed $25,000 under a Term Loan agreement
with The First National Bank of Boston with a maturity date of
December 31, 2001. This debt bears interest at a rate of LIBOR
plus 2.75% and is paid on a quarterly basis. At December 31,
1995, the entire $25,000 was outstanding. The SPL Senior Notes
are secured by all of the assets of SPL. The applicable interest
rate at December 31, 1995, was 8.4375%.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
E In July of 1993, the Company issued $275,000 10 3/8% Senior Notes
("Senior Notes") due 2003. These notes bear interest at a rate
of 10 3/8% per annum, payable semi-annually in cash on February
1 and August 1 of each year. The payments began on February 1,
1994.
The Senior Notes are redeemable for 105.18750% of the principal
amount from August 1, 1998 to July 31, 1999, 102.59375% from
August 1, 1999 to July 31, 2000, and 100% from August 1, 2000 and
thereafter plus any accrued and unpaid interest to the date of
redemption.
The fair value of the Senior Notes was $233,750 at December 31,
1995. The fair value was calculated using the Senior Notes'
December 31, 1995 market price multiplied by the face amount. The
Senior Notes are not secured by the assets of the Company.
F In July 1993 the Company issued $133,075 11 3/4% Senior
Subordinated Discount Debentures, ("Discount Debentures") due
2005. The Discount Debentures were issued at a substantial
discount from this principal amount. The interest on the Discount
Debentures will be payable in cash semi-annually on February 1 and
August 1 of each year beginning in 1999.
The Discount Debentures are redeemable for 105.87500% of the
accreted value from August 1, 1998 to July 31, 1999, 102.93750%
from August 1, 1999 to July 31, 2000 and 100% from August 1, 2000
and thereafter plus any accrued and unpaid interest from August
1, 1998 to the redemption date if such redemption occurs after
August 1, 1998.
The fair value of the Discount Debentures was $77,184 at December
31, 1995. The fair value was calculated using the Discount
Debentures' December 31, 1995 market price multiplied by the face
amount. The Discount Debentures are not secured by the assets of
the Company.
The proceeds from the issuance of the above Senior Notes and the Discount
Debentures were used to repurchase previously issued Senior Subordinated Notes
consisting of $102,300 principal amount of 13-7/8% Series A Senior
Subordinated Notes (Series A) due 1998, and $105,000 principal amount of
13-5/8% Series B Senior Subordinated Reset Notes (Series B) due 1998. Due to
the repurchase, the Company incurred a $26,192 extraordinary loss which was
comprised of a $7,233 write-off of deferred financing fees, a $1,634 write-off
of the debt discount relating to the Series A and Series B debt issuance, and
$17,325 in premium and consent fees.
The Indenture relating to the Senior Notes and Discount Debentures restricts
the ability of the Company to incur additional indebtedness. The Indenture
also restricts: the payment of dividends, the repurchase of stock and the
making of certain other restricted payments; restrictions that can be imposed
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
on dividend payments to the Company by its subsidiaries; significant
acquisitions; and certain mergers or consolidations. The Indenture will also
require the Company to redeem the Senior Notes and Discount Debentures upon
a change of control and to offer to purchase a specified percentage of the
Senior Notes and Discount Debentures if it fails to maintain a minimum level
of capital funds (as defined).
At December 31, 1995, the Company had borrowings outstanding on lines of
credit totaling $16,239. The borrowings were at Welcome Home, $5,213, Dura-
Line, $526, Merkle-Korff, $500, and SPL Holdings, $10,000.
In May of 1995, Welcome Home entered into a Loan and Security Agreement with
Shawmut Capital Corporation. The credit facility under this agreement
provides for borrowings of up to 65% of Welcome Home's Eligible Inventory,
with a maximum borrowing of $20,000. At December 31, 1995, Welcome Home had
outstanding borrowings of $5,213, which carried a weighted average interest
rate of 8.1%. The facility is secured by substantially all of Welcome Home's
assets.
Dura-Line has available a line of credit from ABN AMRO Bank N.V. of Prague,
Czech Republic in the amount of $1,000. The line of credit matures and is due
on April 15, 1996, if not renewed. At December 31, 1995, Dura-Line had
outstanding borrowings of $526 which carried an interest rate of 1.25% above
PRIBOR (Prague Inter-Bank Offered Rate). The applicable rate at December 31,
1995 was 12.5%. The facility is secured by the assets of Dura-Line's majority
owned subsidiary, Dura-Line CT s.r.o., which is located in the Czech Republic.
The facility is also guaranteed with a standby letter of credit.
Merkle-Korff has available a $12,000 Revolving Credit Facility with Banker's
Trust Company. The facility has a term of six years from the date of
inception and will expire on September 22, 2001. The interest rate on
borrowing is calculated at Prime + 1.5% or LIBOR + 2.75%. The aggregate
outstanding at December 31, 1995 was $500 and the applicable rate was 10.0%.
The facility is secured by the stock and assets of Merkle-Korff and its
divisions.
In August 1995, SPL borrowed $8,000 under a Revolving Credit Facility (the
"Revolver") with The First National Bank of Boston. The facility has a
borrowing limit of $20,000. It subsequently borrowed an additional $2,000
under this line of credit. The aggregate outstanding at December 31, 1995,
was $10,000. This facility bears interest at a rate of LIBOR plus 2.75%
payable on a 30, 60, or 90 day basis. The facility is secured by all of the
assets of SPL. The applicable interest rate at December 31, 1995, was 8.4375%.
The Company is, and expects to continue to be, in compliance with the
provisions of the Indenture.
Included in interest expense is $1,743, $1,405 and $1,363 of amortization of
debt issuance costs for the year ended December 31, 1995, 1994 and 1993,
respectively.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 11 - Income taxes
The (benefit) provision for income taxes consists of the following:
Year Ended December 31,
1995 1994 1993
Current:
Federal $ 400 $ 356 $ -
State and local 1,401 967 747
1,801 1,323 747
Deferred (4,247) 9 (40)
Total $(2,446) $1,332 $ 707
Deferred income taxes consist of: Dec. 31, Dec. 31,
1995 1994
Deferred tax liabilities:
Tax over book depreciation $ 7,368 $ 7,447
Basis in subsidiary 798 798
LIFO reserve 257 333
Other 392 186
Total deferred tax liabilities 8,815 8,764
Deferred tax assets:
NOL carryforwards 20,060 21,371
Accrued interest on discount debentures 8,187 4,560
Pension obligation 211 191
Vacation accrual 613 517
Uniform capitalization of inventory 580 610
Allowance for doubtful accounts 721 609
Capital lease obligations 456 355
Other 193 472
Total deferred tax assets 31,021 28,685
Valuation allowance for deferred
tax assets (21,466) (23,428)
Net deferred tax assets 9,555 5,257
Net deferred tax (assets) liabilities $ (740) $ 3,507
The decrease in the valuation allowance during 1995 and 1994 was $1,962 and
$2,354, respectively.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The provision (benefit) for income taxes differs from the amount of income tax
benefit computed by applying the United States federal income tax rate to
(loss) income before income taxes, minority interest, and extraordinary items.
A reconciliation of the differences is as follows:
Year ended
December 31,
1995 1994 1993
Computed statutory tax provision (benefit) $(4,003) $9,414 $ (958)
Increase (decrease) resulting from:
Net losses for which no benefit
was taken - - 362
Foreign subsidiary losses 680 - -
Amortization of goodwill 756 682 590
Disallowed meals and entertainment 425 - -
Use of separate company net operating
loss carryforward - (1,329) -
Tax basis in excess of book basis in
partial sale of a subsidiary - (8,460) -
State and local tax 1,401 1,010 720
Alternative minimum tax 400 - -
Decrease in valuation allowance (1,962) - -
Other items, net (143) 15 (7)
Provision (benefit) for income taxes $(2,446) $1,332 $ 707
As of December 31, 1995, the consolidated loss carryforwards are approximately
$44,000 and $31,000 for regular tax and alternative minimum tax purposes,
respectively, and expire in various years through 2009. A subsidiary of the
Company, which is not consolidated for tax purposes, has approximately $8,300
of net operating loss carryforwards that expire in various years through 2010.
A valuation reserve of $3,000 has been recorded against the related $5,200
asset.
Note 12 - Related party transactions
The principals, partners, officers, employees and affiliates of The Jordan
Company (the "Jordan Group") own substantially all of the common stock of the
Company. The Jordan Group also owns substantially all of the common stock of
Cape Craftsmen, Inc.
On June 1, 1988, an agreement was executed, which was amended and restated on
June 29, 1994, whereby the Company will pay TJC Management Corporation ("TJC")
a quarterly fee equal to .75% of the Company's Cash Flow for the four full
fiscal quarters next preceding the date of payment of such quarterly fee.
Under this agreement the Company accrued fees to TJC of $2,691, $1,962 and
$1,503 in 1995, 1994 and 1993, respectively.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
In addition, beginning June 1, 1988, The Jordan Company is to be paid an
investment banking fee of up to 2%, based on the aggregate consideration paid,
for its assistance in acquisitions undertaken by the Company or its
subsidiaries, and a financial consulting fee not to exceed 1% of the aggregate
debt and equity financing that is arranged by the Jordan Company, plus the
reimbursement of out-of-pocket and other expenses. The Company paid $3,500
in 1993 to The Jordan Company for their fee in relation to the Company's
refinancing. In 1994, the Company paid $1,803 to the Jordan Company for their
fees in relation to the Welcome Home public offering, the acquisitions of
Valmark and Pamco, and the signing of the Revolving Credit Facility. In 1995,
the Company paid $2,055 to The Jordan Company for their fees related to the
Merkle-Korff acquisition, and Welcome Home paid The Jordan Company $200
related to their New Bank Credit Facility.
In February 1988, the Company entered into an employment agreement with its
President and Chief Operating Officer which provides for annual compensation,
including base salary and bonus, of not less than $350. The agreement also
provides for severance payments in the event of termination for reasons other
than cause, voluntary termination, disability or death; disability payments,
under certain conditions, in the event of termination due to disability; and
a lump sum payment of $1,000 in the event of death. The Company maintains a
$5,000 "key man" life insurance policy on its president under which the
Company is the beneficiary.
Welcome Home purchases inventories from Cape Craftsmen, Inc. Such purchases
amounted to approximately $10,677, $8,966, and $3,500, for the years ended
December 31, 1995, 1994 and 1993, respectively.
An individual who is a shareholder, Director, General Counsel and Secretary
for the Company is also a partner in a law firm used by the Company. The firm
was paid $376, $660 and $331 in fees and expenses in 1995, 1994 and 1993,
respectively. The rates charged to the Company were at arms-length.
Also see Notes 6, 16 and 17.
Note 13 - Capital stock
Under the terms of a restricted common stock agreement with certain
shareholders and members of management, the Company has the right, under
certain circumstances, for a specified period of time to reacquire shares from
certain shareholders and management at their original cost. Starting in 1993
or within 60 days of termination, the Company's right to repurchase may be
nullified if $1,800, in the aggregate, is paid to the Company by management.
On January 20, 1989, the Company, in exchange for three thousand five hundred
dollars, sold warrants to acquire 3,500 shares of its common stock to
Mezzanine Capital & Income Trust 2001, PLC (MCIT), a publicly traded U.K.
investment trust, in which principal stockholders of the Company also hold
capital and income shares. These warrants were sold in conjunction with
MCIT's purchase
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
of $7,000 of Senior Subordinated Notes. Each Warrant entitles the holder to
purchase one share of the Company's common stock at a price of $4.00 (dollars)
at any time, subject to certain events, prior to January 20, 1999. These
warrants were valued at $700 based on an independent appraisal.
On January 1, 1992 the Company issued 1,633.8386 shares of common stock for
$175. On December 31, 1992 the Company issued an additional 400 shares of
stock for $43.
Note 14 - Business segment information
The Company's business operations are classified into five business segments:
Specialty Printing and Labeling, Motors and Gears, Connectors, Welcome Home,
and Consumer and Industrial Products.
Motors and Gears includes the manufacture of electric motors for both
industrial and commercial use by Imperial; small electrical motors by Scott;
precision gears and gear boxes by Gear; and AC and DC gears and gear motors
for both industrial and commercial use by Merkle-Korff.
Connectors includes the manufacture of electronic connectors and switches by
AIM and Cambridge.
Welcome Home includes the specialty retailing of decorative home furnishing
accessories by 215 Welcome Home stores.
Consumer and Industrial Products includes the remanufacturing of transmission
sub-systems for the U.S. automotive aftermarket by DACCO; manufacture and
marketing of safety reflectors, lamp components, bicycle reflector kits,
colorants and emergency warning triangles by Sate-Lite, the publishing of
Bibles and the distribution of Bibles, religious books, and recorded music by
Riverside; manufacture and distribution of silicon pre-lubricated plenum and
other configurations of Innerduct, a proprietary plastic pipe used in the
installation of fiber optic cable, and rigid polyethylene pipe used for
transporting potable water by Dura-Line; precision machined titanium hot
formed parts used by the aerospace industry by Parsons; specialty-type locks
by Hudson; and point-of-purchase advertising displays by Beemak.
There are no inter-segment sales. Foreign operations and export sales are not
significant. No single customer accounts for 10% or more of net sales.
Operating income by business segment is defined as net sales less operating
costs and expenses, excluding interest and corporate expenses.
Identifiable assets are those used by each segment in its operations.
Corporate assets consist primarily of cash and cash equivalents, equipment,
notes receivable from affiliates and deferred debt issuance costs.
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Year ended
December 31,
1995 1994 1993
Net sales:
Specialty Printing & Labeling $ 96,514 $ 82,828 $ 60,640
Motors and Gears 54,218 36,854 32,241
Connectors 22,744 21,325 18,880
Welcome Home 93,166 81,654 61,633
Consumer and Industrial Products 240,669 201,730 185,217
Total $507,311 $424,391 $358,611
Operating income:
Specialty Printing & Labeling $ 8,067 $ 5,522 $ 1,343
Motors and Gears 12,236 9,484 7,300
Connectors 5,478 5,444 3,168
Welcome Home (10,066) 7,076 6,581
Consumer and Industrial Products 34,283 28,992 26,755
Total business segment operating
income 49,998 56,518 45,147
Corporate expenses (17,638) (13,574) (8,760)
Total consolidated operating
income $ 32,360 $ 42,944 $ 36,387
Depreciation and amortization
(including the amortization of
goodwill and intangibles):
Specialty Printing & Labeling $ 3,776 $ 3,252 $ 1,569
Motors and Gears 2,262 1,070 1,600
Connectors 1,339 2,255 3,058
Welcome Home 2,121 1,324 940
Consumer and Industrial Products 10,014 9,406 10,205
Total business segment
depreciation and amortization 19,512 17,307 17,372
Corporate 2,172 1,792 430
Total consolidated